S-A Cuts 275 Jobs in Overhaul

7/05/1998 8:00 PM Eastern

By: KENT GIBBON and LESLIE ELLIS

Scientific-Atlanta Inc. plans several restructuring moves that will cost $60 million to$75 million in the current quarter and eliminate 275 jobs as part of efforts to make thecompany more cost-competitive.

Fortunately for the set-top vendor, S-A also owns 1.5 million shares of hot chip-makerBroadcom Inc., which went public in May, and which has seen its share price shoot up tolast week's $68 close. So S-A will record a $100 million one-time gain in thecurrent, fiscal fourth quarter, more than offsetting the restructuring charges.

S-A said the restructuring moves won't have a negative impact on the quarterlyresults of ongoing operations. An S-A spokesman said the company probably won't giveprojections of ongoing cost savings until its quarterly results are released in earlyAugust.

S-A CEO James McDonald, in a prepared statement, said the moves were "necessary toimprove our competitive position."

McDonald noted that the company is building a new, $40 million facility in suburbanAtlanta that will combine operations that are currently scattered in 18 locations.

"We are very sensitive to the impact that these actions will have on some of ouremployees, and we will work to make the transition as smooth as possible for them,"he added.

S-A and other cable-technology vendors' stocks have risen since news of AT&TCorp.'s merger with Tele-Communications Inc. broke. On June 26, when the S-Arestructuring release came out, the company's share price dropped by 44 cents, to$24.81. By midday Wednesday, S-A shares were back up to $26.62.

The restructuring moves include:

 Shifting the company's RF (radio-frequency) amplifier product line fromAtlanta to Juarez, Mexico, by October. All of S-A's major competitors have madesimilar moves to low-cost manufacturing areas.

 Consolidating the Vancouver, British Columbia, cable-headend-production lineinto Atlanta, partly to more effectively manage the transition from analog- todigital-headend products.

 Moving the European headquarters to Frankfurt, Germany, from London; and the FarEast regional headquarters to Singapore from Hong Kong.

 Combining the satellite-networks and communications and tracking-systemsbusiness units.

S-A opened its Juarez production line three years ago to handle high-volume, low-costproduction, while the Atlanta operations will focus on lower-volume work that requiresclose engineering support, the company said.

Nikos Theodosopoulos, a technology-stock analyst and managing director at WarburgDillon Read, said the restructuring was "indicative of some of their weakness in Asiaand in the satellite business." Moving the European operations to Germany recognizesthe fact that "that's where most of the opportunities are" in thecontinental portion of Europe.

The moves will eliminate 275 jobs in the Atlanta area -- mostly manufacturing jobs fromthe RF-production line. S-A also plans to shift 150 jobs to Atlanta from elsewhere,reducing the total Atlanta cutbacks to about 125 jobs. Restructuring charges involveseverance and writing down certain assets, such as excess inventory related to theconsolidation.

S-A is not alone in its plan to reshuffle for financial buoyancy. This past October,S-A's bitter rival in the cable-hardware realm, General Instrument Corp., madesimilar moves to reorganize its manufacturing operations and corporate structure.

But that was before TCI, GI's largest customer, initiated what many cableexecutives viewed as a "GI bailout" by masterminding a multiple-MSO order formore than 15 million of GI's advanced-digital set-top line, the DCT-5000.

S-A countered that move with repeated word earlier this year of its multiple-MSOorders, mostly coming from Time Warner Cable. S-A's senior executives said theirhigh-end advanced-digital line, Explorer, is shipping -- despite seemingly contradictoryword from Time Warner that it plans to step up its digital-video-deployment efforts thisfall.

S-A declined to discuss order specifics, saying only that the combined order load forits Explorer 2000 digital two-way set-top now sits at 850,000 units. That number includesthe 550,000 boxes previously ordered by Time Warner and a still-unspecified order fromComcast Corp.

After subtracting Time Warner's previously announced order, the seven operators --none of which would publicly discuss their specific S-A order levels -- will divvy up aremainder of 300,000 set-tops.